Can i deduct home expenses

The cost of mortgage insurance is currently deductible. The deduction includes the amount paid for private mortgage insurance for conventional loans and mortgage insurance for FHA loans. The amount you paid for mortgage insurance is treated as mortgage interest, the IRS says.

The mortgage insurance deduction had expired at the end of , but Congress extended it to include premiums paid through the end of Here's a roundup of expenses homeowners can't deduct:.

Rent for living in the home before closing. Costs for getting or refinancing a mortgage, such as loan assumption, credit report and appraisal fees. Forfeited deposits, down payments or earnest money.

Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind. Mortgage interest. Home equity loan interest. Discount points. Property taxes. Home office expenses. Medically necessary home improvements. Mortgage insurance premiums. Homeowner costs that aren't tax-deductible. Home insurance premiums. Homeowner association fees. Transfer taxes or stamp taxes. If the exclusive use requirement applies, you can't deduct business expenses for any part of your home that you use both for personal and business purposes.

For example, if you're an attorney and use the den of your home to write legal briefs and for personal purposes, you may not deduct any business use of your home expenses. Further, under the principal place of business test, you must determine that your home is the principal place of your trade or business after considering where you perform your most important business activities and where you spend most of your business activity time, in order to deduct expenses for the business use of your home.

A portion of your home may qualify as your principal place of business if you use it for the administrative or management activities of your trade or business and have no other fixed location where you conduct substantial administrative or management activities for that trade or business.

You also may take deductions for business storage purposes when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive use isn't required in these cases.

Deductible expenses for business use of your home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, you may not deduct expenses for the parts of your home not used for business, for example, lawn care or painting a room not used for business. Regular Method - You compute the business use of home deduction by dividing expenses of operating the home between personal and business use.

You may deduct direct business expenses in full, and may allocate the indirect total expenses of the home to the percentage of the home floor space used for business. An additional 0. The threshold figures are:. The income thresholds for additional Medicare tax apply not only to self-employment income but also to your combined wages, compensation, and self-employment income. Paying extra taxes to be your own boss is no fun. The good news is that the self-employment tax will cost you less than you might think because you get to deduct half of your self-employment tax from your net income when calculating your income tax.

The Internal Revenue Service IRS treats the employer portion of the self-employment tax as a business expense and allows you to deduct it accordingly. It does not reduce the net earnings from self-employment or reduce the self-employment tax itself. Self-employed individuals determine their net income from self-employment and deductions based on their method of accounting.

Most self-employed individuals use the cash method of accounting and will therefore include all income actually or constructively received during the period and all deductions actually paid during the period when determining their net income from self-employment. The home office deduction is one of the more complex deductions.

In short, the cost of any workspace that you use regularly and exclusively for your business, whether you rent or own it, can be deducted as a home office expense. You are basically on the honor system, but you should be prepared to defend your deduction in the event of an IRS audit.

One way to do this is to prepare a diagram of your workspace, with accurate measurements, in case you are required to submit this information to substantiate your deduction, which uses the square footage of your workspace in its calculation. In addition to the office space itself, the expenses that you can deduct for your home office include the business percentage of deductible mortgage interest , home depreciation , utilities, homeowners insurance , and repairs that you pay during the year.

Some of these deductions, such as mortgage interest and home depreciation, apply only to those who own rather than rent their home office space. The standard method requires you to calculate your actual home office expenses and keep detailed records in the event of an audit. The simplified option lets you multiply an IRS-determined rate by your home office square footage.

To use the simplified option, your home office must not be larger than square feet, and you cannot deduct depreciation or home-related itemized deductions. Regardless of whether you claim the home office deduction, you can deduct the business portion of your phone, fax, and Internet expenses. The key is to deduct only the expenses directly related to your business.

For example, you could deduct the Internet-related costs of running a website for your business. A meal is a tax-deductible business expense when you are traveling for business, at a business conference, or entertaining a client.

Unfortunately, this means that the desk lunch is not tax deductible. This provision is effective for expenses incurred after Dec. The lunch that you eat alone at your desk is not tax deductible. Additionally, before the TCJA, meals and entertainment expenses were considered together.

To qualify as a tax deduction, business travel must last longer than an ordinary workday, require you to get sleep or rest, and take place away from the general area of your tax home usually, outside the city where your business is located. Further, to be considered a business trip, you should have a specific business purpose planned before you leave home and you must actually engage in business activity—such as finding new customers, meeting with clients, or learning new skills directly related to your business—while you are on the road.

Keep complete and accurate records and receipts for your business travel expenses and activities, as this deduction often draws scrutiny from the IRS. Deductible travel expenses include the cost of transportation to and from your destination such as plane fare , the cost of transportation at your destination such as car rental, Uber fare, or subway tickets , lodging, and meals.

If your trip combines business with pleasure, then things get a lot more complicated; in a nutshell, you can only deduct the expenses related to the business portion of your trip. For example, if your spouse who does not work for you as an employee joins you on a business trip, then you can only deduct the portion of lodging and transportation costs that would have been incurred if you had traveled alone. When you use your car for business, your expenses for those drives are tax deductible.

You can calculate your deduction using either the standard mileage rate determined annually by the IRS or your actual expenses. The standard mileage rates are Using the standard mileage rate is easiest because it requires minimal record keeping and calculation.

Just write down the business miles that you drive and the dates when you drive them. Then, multiply your total annual business miles by the standard mileage rate. This amount is your deductible expense. To use the actual expense method, you must calculate the percentage of driving that you did for business all year as well as the total cost of operating your car, including depreciation, gas, oil changes, registration fees, repairs, and car insurance. If you want to use the standard mileage rate on a car that you own, then you need to use that method in the first year when the car is available for use in your business.

In later years, you can choose to use either the standard mileage rate or switch to actual expenses. If you are leasing a vehicle and wish to use the standard mileage rate, you must use the standard mileage rate in each year of the lease period. As with the home office deduction, it may be worth calculating your deduction both ways so that you can claim whichever is the larger amount. Interest on a business loan from a bank is a tax-deductible business expense.

You will need to track the disbursement of funds for various uses if the entire loan is not used for business-related activities. Credit card interest is not tax deductible when you incur the interest for personal purchases, but when the interest applies to business purchases, it is tax deductible. A tax deduction only gives you back some of your money, not all of it, so try to avoid borrowing money.

For some businesses, though, borrowing may be the only way to get up and running, to sustain the business through slow periods, or to ramp up for busy periods. The cost of specialized magazines, journals, and books directly related to your business is tax deductible as supplies and materials. A daily newspaper, for example, would not be specific enough to be considered a business expense. Any education expenses that you want to deduct must be related to maintaining or improving your skills for your existing business.

Do you pay premiums for any type of insurance to protect your business , such as fire insurance, credit insurance, car insurance on a business vehicle, or business liability insurance? If so, you can deduct your premiums. The business insurance tax deduction can help ease that dislike. If you rent out an office space, you can deduct the amount that you pay for rent.

You can also deduct amounts paid for any equipment that you rent. And if you have to pay a fee to cancel a business lease, that expense is deductible, too.